Warren Buffett’s Berkshire Hathaway owns one of the world’s most closely followed stock portfolios. Berkshire’s top holdings are Apple, Bank of America, American Express, and Coca-Cola, but investors sometimes gloss over the smaller positions that might have more growth potential than those blue chip behemoths.
One of those oft-overlooked stocks is Nu Holdings (NYSE: NU), a Brazilian digital bank that accounts for just 0.3% of Berkshire’s portfolio. Berkshire currently holds 107.1 million shares of Nu, which gives it a 2.3% stake in the company, and that investment might go parabolic in 2024 for a few simple reasons.
What does Nu Holdings do?
Nu is an online-only bank that operates in Brazil, Mexico, and Colombia. It served 93.9 million customers at the end of 2023, compared to 54 million customers just two years ago, and is now the fifth-largest financial institution in Latin America.
Nu initially only provided digital checking and savings accounts, but it subsequently expanded its fintech ecosystem by rolling out credit cards, payment services, business loans, investment tools, and insurance services. That platform is sticky: Its average customer has already signed up for at least four of those offerings.
How fast is Nu growing?
Nu’s revenue soared 168% (on a constant currency basis) in 2022 and jumped 63% in 2023. Here’s how rapidly it expanded its customer base and increased its monthly average revenue per active customer (ARPAC) over the past year.
|
Metric |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
|---|---|---|---|---|---|
|
Customer growth (YOY) |
38% |
33% |
28% |
27% |
26% |
|
Monthly ARPAC growth (YOY) |
37% |
28% |
19% |
27% |
23% |
Data source: Nu Holdings. YOY = year over year. Constant currency basis.
Analysts expect Nu’s revenue to rise 38% in 2024 and 25% in 2025. Those growth rates should be driven by its expansion into more Latin American markets, its cross-sales of additional services to its existing customers, and climbing interest rates.
But unlike many smaller online banks or fintech companies, Nu isn’t sacrificing its margins to gain new customers. In fact, its monthly average cost to serve each active customer actually declined 11% in 2022 and stayed flat in 2023. As a result, its gross margin expanded over the past year while rising rates boosted its net interest margin.
|
Metric |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
|---|---|---|---|---|---|
|
Gross margin |
40% |
40% |
42% |
43% |
48% |
|
Net interest margin |
13.5% |
15.7% |
18.3% |
18.8% |
18.3% |
Data source: Nu Holdings. Constant currency basis.
As a result. Nu’s adjusted net income surged 2,858% (on a constant currency basis) in 2022 and 469% in 2023. Analysts expect its adjusted EPS to increase by 60% in 2024 and 65% in 2025. Those are stunning growth rates for a stock that trades at 25 times forward earnings.
Why could Nu’s stock skyrocket this year?
Nu’s stock has rallied nearly 140% over the past 12 months, but it still looks surprisingly cheap relative to its growth rates. Concerns about inflation in Latin America, competition from e-commerce and fintech leaders like MercadoLibre, and the market’s hesitancy to embrace growth stocks before interest rates decline all seem to be compressing its valuation.
But over the long term, Nu should still have plenty of room to run as internet penetration and income levels rise across Latin America. It could also lock in more unbanked individuals in the region as it enters less developed markets. If investors recognize those strengths, its stock could attract a stampede of bulls and go parabolic over the next 12 months.
Should you invest $1,000 in Nu Holdings right now?
Before you buy stock in Nu Holdings, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nu Holdings wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $518,784!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of April 15, 2024
American Express is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Leo Sun has positions in Apple and MercadoLibre. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and MercadoLibre. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
1 Warren Buffett Stock That Could Go Parabolic in 2024 was originally published by The Motley Fool
